Q

What's the best way to manage unprofitable customers?

Learn tips for turning unprofitable customers into profitable customers in this tip. Find out who in the organization should manage unprofitable customers.

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What can we do to manage unprofitable customers and what can our customer service reps do to transform unprofitable customers into profitable ones? Are there any best practices we can have them follow?
When we start asking how our customer service reps can turn unprofitable customers into profitable customers, then the question is, in my mind, a little misplaced, because it's not something that the call center agents should be given responsibility for doing, it's something that's going to have to happen several places within the organization at the same time.

For example, if we were to measure the value of our customers only based on what they're spending with us this quarter, then that will make us more interested only in people who are current spenders and current big spenders. But if we understand the value of a customer a little bit differently, and that is, if we start looking at potential value as well as total relationship value, then we're going to be willing to do things for a customer...

this quarter that may make this quarter not profitable for a particular customer but in the long run will make a customer profitable. Another thing we may want to do is measure things like "willingness to refer" – there have been several studies done that show us that in many cases the highest spenders aren't necessarily those with the highest referral value – in many cases, medium spenders are high referral customers. So if we're only measuring customer value by the money they're spending with us and not by other factors as well, then we may not be really looking at the true profitability of customers that this question suggests.

We have to be measuring the right kind of profitability when we think about the profitability of customers. That's the first, most important part of this question, and that means that we really are looking at something much bigger than the call center rep and their responsibility. It's not just a matter of "how do we make sure that someone's spending more with us then we're spending to get their business;" but rather, are we meeting the needs of customers in such a way that they value us to the extent that they will today and tomorrow be more likely to do more business with us at a rate that makes them profitable now and in the long run? Then, once we've solved all of that, we go to the call center agents and we say, "How can you make sure that you're contributing to this process that all of us are responsible for?". The answer to that question lies in things like this: Are we making sure that we're solving a problem, are we making our customers appropriately aware of the next right thing for this customer, and are we making sure that customers are aware of what's best for them, are we acting fairly? Are we doing things that will build that customer equity and not just sell something on this call? Those are the ways that we need to think about helping our call center reps build customer value.

When we think about turning unprofitable customers into profitable ones, in many cases it's going to mean moving them away from the call center altogether. In many cases what we see are companies who are happy to serve customers online if that works for the customer and therefore supports a lower profit margin on a particular customer, providing a service without costing a company so much as a contact by phone might. There are a lot of issues here that may or may not be in the hands of the call center rep. Before we can really answer the question we've got to handle all of these other questions first.

This was first published in December 2008

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